The president-elect’s commitment to broadband is a pleasant tease to the Internet community. We expect American broadband to perform as well as our electricity and water supplies; we expect the digital highway to be as well maintained and ubiquitous as our actual highway; and we expect broadband to always be less and less costly, inelastic to energy and labor and whatever kind of costs. Considering our expectations, many decry the idea that America globally ranks 15th in broadband speeds, and many point at the failure of our market Internet Service Providers to make our bandwidth and accessibility first-class. Here the president elect is at a crossroads, not the least because concrete plans to expand broadband rival the complexity of a national highway system and electrical grid. He faces an enormous, vital challenge because in order to “strengthen America’s competitiveness in the world,” he must eliminate competition here: specifically, he must nationalize the Internet infrastructure to make it the best in the world.
Internet nationalization is inevitable because there really isn’t any other way the president elect can fulfill his promises. There are no other options principally because the level of regulation and funding required to achieve his goals is effectively nationalizing broadband. For instance, the net neutrality debate is not framed between regulation versus no regulation, but what kind of regulation: namely, “zero discriminatory surcharge rules” versus “zero price regulations” (seen in a bill currently proposed by Rep. Ed Markey, D-MA). Furthermore, plans to improve the broadband infrastructure feature $30 billion figures funded exclusively by government tax revenue. The natural consequence of today’s Internet politics is that eventually, the government will run the Internet if we want the Internet’s performance to exceed our expectations.
Considering our expectations, making the Internet a utility like water, electricity, gas and roads seems intuitive. We expect our Internet connections to work precisely as well as regular state-controlled utilities. Since only one or two broadband providers are available to most customers, the market has failed precisely as it had for utilities like electricity and gas in the past. The government enforces complex competition clauses to prevent incumbent communications providers from abusing their positions in, for instance, the cable industry to expand into broadband anti-competitively. Most importantly, whether or not it was intended to become so valuable, broadband has evolved into an essential utility for almost all forms of commerce and communication. From all perspectives, whether supplying, consuming or regulating, broadband is effectively a utility. It’s essential to consider the arguments against nationalization, however, in order to fully grasp what the inevitable plan for national broadband will sacrifice.
By nationalizing broadband, we risk stifling innovation. This is the ‘cop-out’ cable company argument, perceived by many as the ISP’s excuse to keep prices high and costly investments into infrastructure low. Innovation doesn’t mean new ways of accessing the Internet. It really means infrastructural improvements, maintenance, paying employees to improve the network and other things known generally as capital expenditures. Profit usually goes to useful capital expenditures that help a company keep going. Consequently, theory says and history confirms that profit, even when achieved by predatory pricing, has the long term effect of keeping prices low and resource availability stable. Take national oil, for instance: In Russia, state control of the oil production means revenue is used for political expenses, not capital expenses. The result is that most Russian oil firms cannot perform capital reinvestment and improve their pumping or refining capacity. In other words, when oil demand rises, they can’t keep up, because their profits were used to balance the budget rather than to explore new reserves or build more derriks and pipes. Consequently, Russian oil firms aren’t as competitive as Exxon-Mobil, which invests the majority of its oft-derided windfall profits on itself.
Capital expenditures are a vital part of any company’s healthy growth. The decision to nationalize broadband means Internet will be priced at cost; no more capital expenditure. Without increasing taxes (generally unpopular), we face an Internet infrastructure that will crumble. And like our roads, government corruption and inefficiency necessarily means these costs skyrocket: highway maintance took $42 billion in Federal funds alone. Nationalizing broadband will be extraordinarily costly in the long term–what we sacrifice is better defined as efficiency and bandwidth speed, not “innovation.”
Are we prepared to exchange a fast Internet for a utility Internet? The prevailing opinion of the administration is yes, considering that speed nearly as quantitatively valuable as low-cost and widely available. Speaking for the administration, MIT computer scientist Daniel Weitzner advocated that we would “rather have a more open Internet at lower speeds than a faster Internet that has all sorts of discrimination built in… We’ve lived with tiny narrow little pipes and done extraordinary things with them.” Rather, he and the administration elaborate, it’s accessibility and openness, not speed, that is itself valuable.
By leaving ISPs to their own devices, their capital expenditures aren’t focused on national priorities. They’re focused on marketing priorities, like having high bandwidth speeds to advertise against their competitors. ISPs reinvest into infrastructure that makes more expensive Internet connections easy to sell and market, not into infrastructure that makes Internet access cheaper and more available. The greatest irony is that the administration itself, by focusing on broadband speeds, plays into the damaging business models of the incumbent ISPs. By promoting the importance of speed versus availability, even in his own speeches, the president elect reinforces the misconception that speed is valuable. Once we move past advertising and recognize actual national priorities and values, a utility Internet appears significantly more valuable than a fast Internet.
A utility Internet could be the most valuable stimulus to our economy in recent times. Several reports point to as many as 220,000 jobs generated by a modest $5 billion stimulus in IT and communications. Thus, though a government Internet is more expensive in the long run, it also generates more commerce and jobs than a privately-controlled Internet ever could. The net benefit of nationalized broadband is greater than the net benefit of private broadband, strongly suggesting that the Obama administration would be making a safe and succesful decision to introduce a single, national ISP.
Commence shorting Comcast, AT&T and Time Warner stock now.